Student loan debt is among the fastest growing debt source for young adults under the age of 30. As tuition rates increase each year and recent graduates struggling to find employment in the poor job market, many are finding themselves unable to repay their loans. The problem with student loan debt is that lenders are vigilant about collecting their money and it is rarely dischargeable in bankruptcy.
Consequences For Defaulting
Defaulting on a federal student loan, such as one funded by the U.S. Department of Education, can lead to serious consequences. Not only are you likely to be bothered by endless collection calls and letters, but you may be at risk of having your wages garnished or tax refund seized.
Defaulting on your student loan payments can lead to having your wages garnished. This means that your employer will be required to pay a portion of your paycheck to the lender before you receive the remaining portion of your check. Up to 15 percent of your paycheck could be garnished each month by the lender until the loan is repaid, which is likely to leave you in worse financial trouble.
Not only is your paycheck at risk from the hands of lenders, but your tax refund check as well. A tax offset is when the money from your federal income tax refund is withheld and collected by the lender in order to satisfy the debt owed. Once the tax refund is seized by the lender, you are not likely to ever receive it back.
As you can imagine both wage garnishment and a tax offset could be in place for several years until your debts are repaid. Both of these consequences can cause severe financial hardship for you, as you are likely to default on other expenses with 15 percent of your paycheck having been garnished.